Financial Control Framework

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Assessing and managing risk

The assessment and underwriting of risk is central to our financial management framework. All transactions we underwrite are reviewed by the Board or by the Executive team in accordance with delegated authorities from the Board.

Country risk is assessed by our Chief Economist. Large or complex transactions are reviewed by the Executive Committee.

Contingent liability & loan ceilings

We operate within a strong regulatory environment. The controls imposed include:

  • regulations in the Export Finance Australias Regulations 1991 under sections 68 and 69 of the Export Finance Australia Corporation Act 1991 (EFIC Act), which limit the total amount of Commercial Account loans we can make and sets the maximum contingent liability we can carry under Commercial Account insurance contracts we enter into and guarantees we give
  • approvals from the Finance Minister under section 59 of the Export Finance Australia Act, which limit the types and amount of funding that we can obtain under various borrowing programs
  • directions from the Minister in accordance with section 9(2) of the Export Finance Australia Act.

Treasury operations

Our treasury activities are carried out within a control framework approved by the Board and compliant with the Export Finance Australia Act, the Public Governance, Performance and Accountability Act 2013 (PGPA Act) and associated approvals required from the Australian Government. Within this framework, we aim to prudently minimise the cost of funding our loan assets on both the Commercial Account and National Interest Account and to prudently maximise the return on our investments – including funds representing our equity, reserves and working capital.

In transacting on wholesale markets, Treasury confines risk prudently within Board and Executive approved limits and does not trade speculatively.

The framework for our funding activities, conducted by Treasury, are set out within section 61 of the EFIC Act which states that ‘Export Finance and Insurance Corporation must not borrow or raise money except under section 58 or 59’.

Section 58 allows the Finance Minister to lend money to Export Finance Australia, out of money appropriated by the Federal Government.

Section 59 allows Export Finance Australia to borrow or raise money, subject to written approval of the Finance Minister. To date, we have funded our activities under section 59 approvals.

We borrow in the global debt capital market to fund our lending operations. The core function of Treasury is to prudently raise funding at competitive rates and to manage the investment of capital and reserves and the surplus liquidity portfolio.

Treasury uses derivative products to minimise currency and interest rate risks arising from our core businesses and our treasury’s funding and investing operations. Our power to enter into derivatives transactions comes from our general powers in section 11 of the Export Finance Australia Act.

The Executive team reports the results of our treasury operations to the Board regularly.

Foreign exchange and interest rate management

The loans we provide to customers, and the rescheduled debts, are mostly denominated in foreign currencies.

We do not take currency exposure on our assets and liabilities – we effectively eliminate foreign exchange exposure by borrowing in the same currency as the assets, or by borrowing in another currency and using cross-currency swaps and other foreign exchange instruments to remove the foreign exchange exposures.

We also use interest rate swaps and futures to match the interest rate profiles of our liabilities with those of our loans.


Under Section 62 of the EFIC Act, the Commonwealth guarantees the due payment by Export Finance Australia of any money that becomes payable, including our borrowings from third parties. The main borrowing instruments currently used are medium-term notes issued in the capital markets and euro-commercial paper.

The main reason we borrow money is to fund loans made to exporters or buyers of Australian exports on either the Commercial Account or the National Interest Account.

Funding may also be necessary when contingent liabilities, such as export finance guarantees provided to banks to support the financing of Australian export trade, are called and we need to pay out the bank. For this reason, we are required to have additional funding capacity available to cover the possibility of borrower defaults and subsequent calls by lending banks on our guarantees.

We also maintain a diversified funding capability with spare capacity to ensure that we have a flexible and robust funding model that can accommodate a degree of disruption to financial markets and to enable a range of pricing and risk management strategies.

We are authorised to raise funds from our approved commercial paper borrowing facilities in advance of loan funding needs. This facility was introduced in 1990 to maintain a minimum market presence and enhance the effectiveness and robustness of our funding model.

Investments & liquidity

Our treasury investments are treated from an accounting perspective as ‘available-for-sale’ and are required to be ‘marked to market’ with gains and losses reflected through equity, not profit and loss.

Our policy is to hold our investments to maturity, but they can be sold if necessary. Assuming no credit defaults, any ‘unrealised’ gains or losses caused by revaluations will not be realised.

The investment approval issued by the Finance Minister under the PGPA Act requires our treasury investments to be in entities rated AA- or better, or ADIs rated BBB- or better.

Capital management

Under section 56 of the EFIC Act, the Board is required ‘to ensure, according to sound commercial principles, that the capital and reserves of Export Finance and Insurance Corporation at any time are sufficient’ in order for us to:

  • meet our likely liabilities and
  • make adequate provision for defaults in loan payments.

This requirement only relates to our Commercial Account activities.

In order to meet this obligation, we have set regulatory standards that draw from both the standards set by the Australian Prudential Regulation Authority (APRA) and the Bank of International Settlements through the Basel Committee on Banking Supervision (Basel).

The Board treats our capital as equivalent to regulatory capital under Basel and APRA guidelines and uses this as the basis for setting risk tolerances in regard to large exposures and capital adequacy.

We do not hold capital against the National Interest Account business on the basis that the Commonwealth bears responsibility for risks of business written on this account.

Large exposure guidelines

Our large exposure policy is based on Basel and APRA guidelines.  Australian banks are required to consult with APRA before committing to any aggregate exposures to non-government, non-bank counterparties exceeding 10 per cent of their capital base. APRA has also indicated a maximum exposure of 25% of capital per non-bank counterparty (or related group of counterparties) – but they have emphasised that this is an upper limit. Only better-rated risks would be contemplated for these levels of exposures.

Our Board has endorsed this maximum limit of 25% of capital and reserves (including callable capital) for exposures graded ERS1 (AAA/AA- or Aaa / Aa3) or ERS2 (A+/A- or A1/A3), but a target of 15% applies for risks graded ERS3 (BBB+/BBB- or Baa1/Baa3) or worse within the general guideline of 25%. Exceptions in excess of the 15% target would require consideration by the Board in light of such issues as the creditworthiness of the relevant counterparty (or group of related counterparties), the tenor of the exposure and the level of Australian content in the particular transaction.

In any event, under current delegations, the Board must approve all transactions that involve commitments in excess of $50 million.

As an exception to this policy, the Board has approved increases in exposure limits to single counterparties under risk transfer arrangements from a maximum 25% to 37.5% for risk transfer partners rated ERS 1 or 2; and from a maximum of 25% to 50% for risk transfer partners rated ERS1 from government-backed export credit agencies.

For bank counterparties, APRA has indicated a maximum exposure of 50% of capital. The Board has endorsed the application of this limit of 50% of capital to all our Treasury activities with bank counterparties (we define this as authorised deposit- taking institutions under the Banking Act 1959 and rated BBB- and above, and other financial entities rated AA- and above), providing any exposure in excess of 25% of our capital has a maturity date of six months or less.

For large exposures purposes, the Board includes as eligible capital the $200 million callable capital that is available from the Commonwealth Government in accordance with the provisions of section 56 of the Export Finance Australia Act.

Financial statements

Our financial statements are published every year in our Annual Report, which is tabled in parliament and available on our website. These financial statements are audited by the Australian National Audit Office (ANAO).


Under section 55 of the EFIC Act, our Board is required to make a recommendation (by written notice to the Minister as to whether we pay a specified  dividend, or not pay a dividend  to the Federal Government for that financial year. The Minister replies, in writing, to either ‘approve’ the recommendation or ‘direct’ the payment of a different specified dividend.